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Entrepreneurship 23 Apr 2018

EIB Group and BBVA sign second synthetic securitization in Spain

The European Investment Bank Group and BBVA have signed a synthetic securitization to finance investment projects of Spanish SMEs. The agreement will enable the provision of €600 million.

The European Investment Bank Group, formed by the European Investment Bank (EIB) and European Investment Fund (EIF), have granted BBVA a €98 million guarantee, on a mezzanine tranche of a €1.95 billion portfolio, that will enable the provision of up to €600 million to finance new investment projects of small Spanish businesses. This is the second mezzanine guarantee operation in a synthetic SME securitization in which the EIB and EIF are jointly participating in Spain.

The agreement was made possible by the support of the European Fund for Strategic Investments (EFSI). EFSI is the central pillar of the Investment Plan for Europe, known as the ‘Juncker Plan’. Its support increases the EIB Group’s capacity to finance investment projects that, in line with the Plan’s criteria, involve activities which by their structure or nature have a higher risk profile but which foster firms’ competitiveness and create jobs.

This is also the second mezzanine guarantee operation subscribed by the EIB Group and BBVA. The previous one, signed in June 2017, has so far enabled the provision of €640 million worth of finance for firms in various sectors, such as wholesale, transport and tourism. The agreement aims to foster support for small and medium-sized firms in all sectors of the Spanish economy, providing them with loans on favorable terms that enable them to obtain funding with lower interest rates and longer repayment periods. Over the last few years, the EIB and BBVA have signed a number of other operations targeting SMEs. In November 2017, they provided €300 million to finance innovation and the digitization of small Spanish businesses; in June 2016, they launched a €600 million credit line; and in 2015, they approved a €1 billion credit line to foster economic recovery and job creation in SMEs.

EIF Chief Executive Pier Luigi Gilibert said about the agreement: “The EIF is delighted to be participating in the EIB Group’s second mezzanine guarantee operation in Spain. Thanks to our partnership with the EIB and BBVA, Spanish SMEs will be able to benefit from the advantages of our financing. This agreement combines the EIF’s experience in mobilizing and structuring investment with the EIB’s efficiency and the support of the Juncker Plan, with the aim of increasing BBVA’s capacity to provide credit to small and medium-sized Spanish businesses, so supporting job creation and economic growth.”

BBVA Spain Head Cristina de Parias added that “BBVA is clearly committed to promoting the growth and digitization of Spain’s business fabric and the improvement of its international competitiveness. This new agreement is a good example of BBVA’s investment in the future of Spanish SMEs.”

What is a synthetic securitization?

A synthetic securitization is a type of operation where the loan portfolio is not transferred to an investment vehicle; instead, the loan remains in the corresponding institution’s balance sheet, but the institution transfers the risk of default (calculated applying Basel’s oversight formula) to a third party. The most common way of transferring this right is through the signing of a derivative, known as Credit Default Swap, or CDS.

The purpose of this type of institution is to transfer balance sheet risk and freeing up capital, in a way such that it facilitates the granting of new loans to families, small and medium sized enterprises, while reducing the costs typical of a traditional securitization, which are typically legal and administrative.

What European authorities support this agreement?

The European Investment Bank (EIB) is the long-term lending institution of the European Union owned by its Member States. It makes long-term finance available for sound investment in order to contribute towards EU policy objectives.

The European Investment Fund (EIF) is part of the European Investment Bank Group. Its central task is to support Europe’s micro, small and medium-sized businesses (SMEs) by helping them to access finance. The EIF designs and develops seed and growth capital, guarantee and microfinance instruments that specifically target this market segment. In this role, it fosters EU objectives in support of innovation, research and development, entrepreneurship, growth and employment.

The Investment Plan for Europe, known as the ‘Juncker Plan’, is one of the European Commission’s top priorities. It focuses on boosting investment to generate jobs and growth by making smarter use of new and existing financial resources, removing obstacles to investment, and providing visibility and technical assistance to investment projects.

The European Fund for Strategic Investments (EFSI) is the main pillar of the Juncker Plan and provides first loss guarantees, enabling the EIB to invest in more projects that often come with greater risks. EFSI has already yielded tangible results. The projects and agreements approved for financing under EFSI are expected to mobilise more than €284bn in investment and support almost 611,000 SMEs in the 28 Member States.

More information on the results of the Investment Plan for Europe is available here.

The European Investment Bank (EIB) is the long-term lending institution of the European Union owned by its Member States. It makes long-term finance available for sound investment in order to contribute towards EU policy objectives.

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